Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2015

Sales and Use Tax Annotations

495.0000 SALE

Annotation 495.0433

(a) IN GENERAL—DEFINITION

495.0433 Research Agreement—Right to Stock/Future Royalties. A and B enter into a research agreement whereby B will pay to A a specified amount of development funds, which A will expend in an attempt to develop products for the treatment and diagnosis of AIDS, and to perform clinical testing and other activities required for U.S. Food and Drug Administration approval of any products which might result from AIDS research. The products, if any, would remain the property of A, and are not transferred to B. Instead as consideration for B providing the funds, if any products are developed, B will receive periodic royalties payable from the gross proceeds received by A from sales or license of the products by A. Also, A has issued to B warrants which allow B to purchase up to a stated maximum number of shares of stock A.

Since this agreement does not call for the sale, lease, or transfer of any tangible personal property, sales and use tax will not apply to the agreement. The transfer of funds in return for the right to receive future royalties and right to receive stock warrants does not constitute a transfer for consideration of tangible personal property. 7/29/88.